The Government’s Insolvency Service is cracking down on reckless business directors, following on from corporate governance reforms last year, which aimed to increase the accountability and transparency of businesses.
A new series of proposals has been outlined with regards to UK businesses, to help tighten up the rules around corporate governance in insolvency scenarios, in order to further protect workers and suppliers following company insolvencies.
Growing corporate concerns
These proposals to crack down on directors and employers behaving irresponsibly, are in response to a growing number of corporate governance failures, where some directors have managed to unfairly shield themselves from the effects of insolvency, often profiting at the expense of small suppliers and workers.
What does the Insolvency Service do?
Essentially the Insolvency Service looks into the management of failing businesses and identifies any directors it believes should be disqualified. Annually, they typically ban about 1,200 directors, for an average of just under 6 years.
They claim that these disqualifications saved creditors around £92m last year. This is based on statistics that showed how often certain directors who have caused one business to go bust, go on to cause losses in another within a 2 to 8 year period.
Now the Insolvency Service’s powers are set to be expanded further. This is thanks to the Department for Business, Innovation and Skills proposed plans to punish directors more severely for attempting to dodge debts and their responsibilities to employees, suppliers or others involved in the business.
Who is the crack-down targeting?
The main targets are:
- Any company directors who dissolve a business before it collapses.
- Any directors of parent companies of insolvent subsidiaries.
- Any buyers of struggling companies, who then impose excessive interest and charges on loans and company property, take large bonuses or arrange the sale and leaseback of assets.
A promise of accountability
The Government wants this to be part of a promise to hold more directors accountable when things go badly wrong for companies – especially in the wake of a number of big corporate collapses, such as Carillion. It also aims to allow administrators to gain more power to reverse transactions, or claw back money.
What do the new proposals include?
The new proposals include:
- Disqualifying any company directors who have been found liable for selling a struggling business or subsidiary recklessly, or having done so knowing it would collapse.
- Clawing any money back for creditors by reversing inappropriate asset stripping of companies on the verge of insolvency.
- Giving greater responsibilities and power to shareholders to steward businesses in which they have investments.
- Looking into how legal and technical frameworks in regards to the payment of dividends can be improved and made more transparent – as these might affect staff and pensions.
Directors who are deemed to have sold a company “recklessly” will be subject to new sanctions. Those who dissolve companies in order to dodge debts will come under official investigation from the Insolvency Service.
If you are worried about your business or just want a (free) no obligation chat, contact Clarke Bell on 0161 907 4044 or [email protected] today.
Our Licensed Insolvency Practitioners will provide you with the best professional advice for your situation.